Republicans want to revisit tribal gas tax refunds

By SCOTT GUTIERREZ, SEATTLEPI.COM STAFF

Published 10:00 pm, Wednesday, March 16, 2011

With the issue possibly headed for the state Supreme Court, Republicans want the governor and state lawmakers to revisit controversial agreements under which $90 million in gas tax money has been refunded to several of the state's Indian tribes.

In 2007, lawmakers changed the state's gas tax law to resolve years of litigation between the state and tribes by sharing gas tax revenue under compacts with federally-recognized tribes that operate or licenses gas stations on tribal lands. Under most of the compacts, the tribes get 75 percent back in the form of refunds on the gas tax. (The gas tax is currently at 37.5 cents per gallon).

Tribal members are exempt from the tax on fuel purchased at reservation gas stations, but a lawsuit filed last year alleges the state is issuing refunds for taxes that tribes don't technically pay.

State Rep. Mike Armstrong, R- Wenatchee, introduced House Bill 2013 last week. It would require stricter auditing of how tribes spend the money and require the Legislature to "appropriate the funds necessary to implement the agreements. It also would restrict tribes to spending the money on "highway purposes," as the state's 18th Amendment governs gas tax revenue.

Under the current system, tribes can spend the money on "transportation planning, construction, and maintenance of roads, bridges, boat ramps, transit services and facilities. They can also use the money to fund "police services and other highway-related purposes," according to legislative records.

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Tribes are required to submit annual reports to the state Department of Licensing but are exempt from public disclosure under the law. Tribes are required to be audited but can choose who performs the audit.

"I think it is just a wake-up call to say, you know, we should be paying attention to some of this," Armstrong told Washington State Wire."And if it does nothing than to have the tribes get engaged in the process a little bit and show us where some of the money is being spent, I think that would be helpful."

The refunds are a tiny portion of the state's $1 billion in annual gas tax revenue, but have increased as more tribes enter into agreements. In 2010, about $29 million in refunds were paid in 22 agreements. That's up from about $7 million at the time the law first passed in 2007, and $14 million in 2008, according to DOL figures submitted to the Legislature.

The legislation follows a lawsuit by Automotive Trades United Organization (AUTO), to stop DOL from paying the refunds. AUTO represents independent gas station owners, who say they can't compete with tribal stations because the refunds allow tribal stations to sell cheaper gas.

The case was dismissed because the tribes, as sovereign nations, can't be sued in state court. The lawsuit didn't originally name the tribes but the state Attorney General's office argued that the tribes are an "indispensable party" to the lawsuit, meaning the case can't be fully or fairly considered without their participation.

"I do find one thing repugnant in this whole situation, and that in our system of government…that there is no judicial remedy," Grays Harbor County Superior Court Judge Gordon Godfrey said in his ruling, adding "this is an issue that needs to be addressed by our [S]upreme Court."

AUTO is in the process of petitioning the state Supreme Court for review.

State and tribal lawyers say that without the compacts, the state could potentially miss out on any gas tax money from sales on tribal lands due to prior court decisions. Tribal officials say the money helps pay for sorely-needed infrastructure on reservations and provides jobs for tribal members. Tribes have also used the money to help the state pay for highway projects near tribal lands.

"We find it really interesting that the focus has been on the tribes," said Kelly Croman, general counsel for Marine View Ventures, the economic development arm of the Puyallup Tribe of Indians in Pierce County, in a January interview with seattlepi.com. "The allegations about subsidizing fuel prices just aren't true. Frankly, we're just good business people running our businesses very well in a very tough market, where the real pressure is not from the tribe."

Auto points out that tribes are among the largest political donors to Gregoire and the state Democratic party. The organization contends in its lawsuit that gas tax money has been used by some tribes for things like boat launches, habitat remediation and collateral for a loan, according to its petition for appeal.

Armstrong's legislation was filed after a this session's cut-off deadline. Armstrong acknowledges in the Washington State Wire story that he aimed to spur discussion, since he didn't expect the bill go anywhere this session.

The issue stems from a federal court decision in in 2003 that involved two tribes -- the Squaxin Island tribe in Mason County and the Swinomish in Skagit County -- and found they were exempt from the state's gas tax.

The judge ruled that due to the original wording of Washington's gas tax law, it placed the "legal incidence" of the tax on consumers at the pump. In effect, if gas is purchased from a station on a reservation, Washington state couldn't force the tribe to collect the state's tax because of tribal sovereignty.

But a few weeks later in a similar case out of Kansas, the U.S. Supreme Court ruled that if the incidence of the tax fell on transactions outside a reservation -- such as when the fuel is sold to distributors before it transferred to gas stations ---then tribes weren't exempt, even if the tax is built in to a higher fuel price.

In 2007, Washington state lawmakers reworded the state's gas tax law under Senate Bill 5272 to clarify where the incidence of the tax fell: Off the reservation and at the terminal rack, where fuel is purchased from wholesalers at Harbor Island and loaded into trucks for distribution.

But at the request of DOL and the governor's office, state lawmakers still included a provision in the bill for the tribal compacts to "provide mutually agreeable means to address any tribal immunities or any pre-emption of the state motor vehicle fuel tax."